Nordic Capital wins appeal against tax ruling

The Swedish appeal court said Nordic shouldn’t have to pay a $100m retroactive tax bill

Buyout firm Nordic Capital has won its appeal against a ruling by a Swedish tax court last year that it needed to pay income tax on previously-earned carried interest.

This decision last December, relating to the fiscal year 2007-2008, paved the way for the Tax Agency to hit Nordic with a retrospective tax bill, which could have reportedly totalled 702 million kroner ($108 million; €79 million).

The appeal has been closely followed in the region, since its failure would have set a precedent for the tax authority to prosecute other GPs.  This was the first such case to get to Sweden’s higher court.

“It is good that this issue has now undergone a thorough legal review,” Joakim Karlsson, managing partner of NC Advisory AB, an advisor to Nordic Capital's funds, said in a statement. “The Administrative Court of Appeal has confirmed that NC Advisory AB has paid tax in accordance with applicable law. This issue has created great uncertainty and taken a great deal of resources for the entire industry and from the tax agency … It's positive that a determination has been made in terms of what applies.”

“From a legal point of view this verdict has clearly shown what NC Advisory AB has claimed all along: NC Advisory AB has paid tax in accordance with current legislation. Tax Agency's argument to the contrary has not been shown to have a legal basis,” Sven-Åke Bergkvist, Mannheimer Swartling Advokatbyrå AB, counsel for NC Advisory AB, said in the statement.

Today's ruling confirms NC Advisory AB's argument that profit sharing should be treated as investment returns for fund investors, Nordic Capital said.

Industry trade body the Swedish Private Equity and Venture Capital Association (SVCA) said it was “not surprised” that Nordic won its case. “The tax authorities never had a case. It should be time for them to reevaluate their aggressiveness based on very weak or no legal grounds,” said in an email SVCA chairman Gabriel Urwitz. 

“The Swedish tax authority has been on these types of innovative fishing expeditions before – and at the end of the day when things are tested in the higher courts, they have lost in all cases so far,” Karlsson said earlier this year.